Navigators Reports Record Net Income in Second Quarter 2018

STAMFORD, Conn., Aug. 08, 2018 (GLOBE NEWSWIRE) -- The Navigators Group, Inc. (NASDAQ:NAVG) reported Net Income of $32.1 million, or $1.07 per diluted share, for the three months ended June 30, 2018 compared to $20.5 million, or $0.69 per diluted share, for the same period in 2017. Net Operating Earnings1 were $27.6 million, or $0.92 per diluted share, for the three months ended June 30, 2018 compared to $19.7 million, or $0.66 per diluted share, for the same period in 2017.

Gross Written Premiums and Net Written Premiums for the three months ended June 30, 2018 were $497.2 million and $379.3 million, respectively, increasing 10.0% and 13.8%, respectively, from the comparable period in 2017. The Combined Ratio for the three months ended June 30, 2018 was 96.0%, compared to 97.3% for the same period in 2017.

Net Investment Income for the three months ended June 30, 2018 was $24.6 million, an increase of 10.5% as compared to the same period in 2017. The annualized pre-tax investment yield, excluding Total Net Realized and Unrealized Gains and Losses recognized in the Results of Operations, was 2.8% for the three months ended June 30, 2018 and 2017.

Other Income (Loss) for the three months ended June 30, 2018 was $2.6 million, compared to $(0.4) million for the same period in 2017. Other Income (Loss) primarily consists of realized and unrealized foreign exchange gains and losses.

Stan Galanski, President and Chief Executive Officer, commented, “We are very pleased with our financial results and operating performance for the second quarter. We continued to achieve profitable underwriting results and double digit premium growth, led by our U.S. Insurance and GlobalRe segments. While the market remains competitive, we are encouraged by both positive renewal price movement for most of our specialty product lines during the quarter as well as by the number of insureds exiting unprofitable product lines, especially in the London market. Our investments continued to perform well, with Net Investment Income up 10.5% for the quarter and six months. During the quarter we completed the acquisition of Belgium based ASCO and BDM, a key to our future growth in the European Union.”

On June 7, 2018, the Company acquired 100% ownership interest in Bracht, Deckers & Mackelbert NV (“BDM”), a specialty underwriting agency, and its affiliated insurance company, Assurances Continentales – Continentale Verzekeringen NV (“ASCO”). The acquisition of BDM/ASCO was undertaken as part of the Company’s strategy of expanding to more brokers and insured across Europe and reinforces the Company’s presence in the European Union’s single market. We anticipate that this will enable the Company to better serve its European clients after Brexit and will also provide an opportunity for BDM and ASCO to reach a wider European audience.

For the six months ended June 30, 2018 the Company reported Net Income of $63.0 million, or $2.09 per diluted share compared to $41.6 million, or $1.39 per diluted share, for the same period in 2017. Net Operating Earnings1 were $60.5 million, or $2.01 per diluted share, for the six months ended June 30, 2018 compared to $40.1 million, or $1.34 per diluted share, for the same period in 2017.

Gross Written Premiums and Net Written Premiums for the six months ended June 30, 2018 were $992.5 million and $772.6 million, respectively, increasing 10.0% and 15.2%, respectively, from the comparable period in 2017. The Combined Ratio for the six months ended June 30, 2018 was 95.0%, compared to 96.9% for the same period in 2017.

Net Investment Income for the six months ended June 30, 2018 was $48.3 million, an increase of 10.5% as compared to the same period in 2017. The annualized pre-tax investment yield, excluding Total Net Realized and Unrealized Gains and Losses recognized in the Results of Operations, was 2.8% for the six months ended June 30, 2018 compared to 2.7% for the same period in 2017.

Other Income for the six months ended June 30, 2018 was $2.5 million, compared to $0.7 million for the same period in 2017. Other Income for the six months ended June 30, 2018 included revenue from the sale of renewal rights for the Company’s fixed-premium protection and indemnity (“P&I”) business as well as net realized and unrealized foreign exchange gains. Other Income for the same period in 2017 primarily consisted of net realized and unrealized foreign exchange gains.

The Company’s investment portfolio mainly consists of fixed income securities with an average quality rating of “AA-/Aa3” as defined by S&P and Moody’s, respectively, with an effective duration of 3.5 years as of June 30, 2018. As of June 30, 2018, Net Unrealized Losses within the Available-For-Sale investment portfolio recognized in Accumulated Other Comprehensive Income were $30.1 million, a change of $71.6 million, compared to Net Unrealized Gains of $41.5 million as of December 31, 2017. Included in this change was the reclassification of $11.8 million of net unrealized gains, before tax, from Accumulated Other Comprehensive Income to Retained Earnings as a result of adopting ASU 2016-01.

The Company recognized $3.1 million of Total Net Realized and Unrealized Gains within the Results of Operations for the three months ended June 30, 2018, compared to $1.7 million for the same period in 2017. The Net Realized and Unrealized Gains within the Results of Operations for the three months ended June 30, 2018 included $1.3 million of Net Unrealized Gains on Equity Securities. For the six months ended June 30, 2018 the Company recognized $1.1 million of Total Net Realized and Unrealized Gains within the Results of Operations, compared to $1.7 million for the same period in 2017. The Net Realized and Unrealized Gains within the Results of Operations for the six months ended June 30, 2018 included $1.9 million of Net Unrealized Losses on Equity Securities.

The effective tax rate was 19.3% and 18.1% for the three and six months ended June 30, 2018, respectively, which compares to 25.4% and 26.0% for the same periods in 2017, with the decrease being primarily a result of changes related to 2017 tax reform.

Stockholders’ Equity was $1.2 billion, or $41.49 per share, as of June 30, 2018 compared to $40.96 per share, as of March 31, 2018, and $41.55 per share, as of December 31, 2017.

During the three months ended June 30, 2018, the Company declared and paid a quarterly cash dividend of $0.07 per share of Common Stock.

The Company will hold a conference call on Thursday, August 9, 2018 starting at 8:30 a.m. (ET) to discuss the 2018 second quarter results. The call will be available via live webcast on Navigators’ website (www.navg.com).

The Navigators Group, Inc. is an international specialty insurance holding company with operations in the United States, the United Kingdom, Continental Europe and Asia.

This press release may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Whenever used in this release, the words “estimate,” “expect,” “believe” or similar expressions are intended to identify such forward-looking statements. Forward-looking statements are derived from information that we currently have and assumptions that we make. These forward-looking statements include statements on the financial impact of tax reform. We continue to assess the tax accounting effects of tax reform. We cannot assure that results that we anticipate will be achieved, since results may differ materially because of known and unknown risks and uncertainties that we face. Please refer to Navigators’ most recent reports on Forms 10-K and 10-Q and its other filings with the Securities and Exchange Commission for a description of Navigators’ business and the important factors that may affect that business. Navigators’ undertakes no obligation to publicly update or revise any forward-looking statement.

/EIN News/ -- 1 Net Operating Earnings is a “non-GAAP financial measure” as defined in Regulation G. A reconciliation of Net Income (the nearest GAAP financial measure) to Net Operating Earnings is provided on page 4 of this release, as is a discussion of the rationale for the presentation of this item.

THE NAVIGATORS GROUP, INC. AND SUBSIDIARIESNON-GAAP RECONCILIATION OF NET INCOME TO NET OPERATING EARNINGS (Unaudited)

In this release, we present Net Operating Earnings, which is a “non-GAAP financial measure” as defined in Regulation G.

Net Operating Earnings is comprised of Net Income excluding After-Tax Total Net Realized and Unrealized Gains (Losses), After-Tax Foreign Exchange Gains (Losses), and the Net Gain on Disposition of Product Line recognized in the Results of Operations.

We believe this presentation enhances the understanding of the results of operations by highlighting the underlying profitability of the business and enables investors and other users of the financial information to analyze underlying business performance in a manner similar to management. We also believe this measure follows industry practice and, therefore facilitates comparison of our performance with our peer group.

The following tables provide a reconciliation of Net Income (the nearest GAAP financial measure) to Net Operating Earnings:

Three Months Ended June 30, 2018

Three Months Ended June 30, 2017

% Change

amounts in thousands, except per share amounts

Pre-Tax

Tax (1)

After-Tax

Pre-Tax

Tax (1)

After-Tax

QTD

Net Income

$

39,788

$

(7,684)

$

32,104

$

27,473

$

(6,971)

$

20,502

56.6%

Adjustments to Net Income:

Total Net Realized and Unrealized Losses

(3,116)

654

(2,462)

(1,694)

593

(1,101)

123.7%

FX Losses (Gains)

(2,586)

543

(2,043)

463

(162)

301

NM

Net Operating Earnings

$

34,086

$

(6,487)

$

27,599

$

26,242

$

(6,540)

$

19,702

40.1%

Average Common Shares Outstanding:

Basic

29,733

29,470

Diluted

30,103

29,918

Net Operating Earnings per Common Share:

Basic

$

0.93

$

0.67

Diluted

$

0.92

$

0.66

(1) - Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of any other relevant factors.NM - Percentage change not meaningful.

Six Months Ended June 30, 2018

Six Months Ended June 30, 2017

% Change

amounts in thousands, except per share amounts

Pre-Tax

Tax (1)

After-Tax

Pre-Tax

Tax (1)

After-Tax

YTD

Net Income

$

76,901

$

(13,919)

$

62,982

$

56,233

$

(14,621)

$

41,612

51.4%

Adjustments to Net Income:

Total Net Realized and Unrealized Losses

(1,104)

232

(872)

(1,650)

578

(1,072)

(18.6%)

FX Losses (Gains)

(1,064)

223

(841)

(660)

231

(429)

96.1%

Net Gain on Disposition of Product Line

(948)

199

(749)

—

—

—

NM

Net Operating Earnings

$

73,785

$

(13,265)

$

60,520

$

53,923

$

(13,812)

$

40,111

50.9%

Average Common Shares Outstanding:

Basic

29,664

29,377

Diluted

30,143

29,897

Net Operating Earnings per Common Share:

Basic

$

2.04

$

1.37

Diluted

$

2.01

$

1.34

(1) - Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of any other relevant factors.NM - Percentage change not meaningful.

As of June 30, 2018, the average quality of the investment portfolio as rated by S&P and Moody’s was “AA-/Aa3”, respectively, with an effective duration of 3.5 years. The Company does not own any collateralized debt obligations or asset backed commercial paper.

The following table sets forth the Available-For-Sale Investments as of June 30, 2018:

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